Is Doral Financial Corp. (DRL) Going to Burn These Hedge Funds?

Doral Financial Corp. (NYSE:DRL) was in 10 hedge funds’ portfolio at the end of December. DRL has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 11 hedge funds in our database with DRL positions at the end of the previous quarter.

If you’d ask most investors, hedge funds are seen as slow, outdated investment tools of the past. While there are over 8000 funds in operation at present, we look at the bigwigs of this group, about 450 funds. It is widely believed that this group oversees most of the hedge fund industry’s total asset base, and by watching their highest performing stock picks, we have figured out a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

ETON PARK CAPITALEqually as key, bullish insider trading activity is a second way to parse down the marketplace. Just as you’d expect, there are a variety of incentives for an upper level exec to drop shares of his or her company, but only one, very clear reason why they would behave bullishly. Various empirical studies have demonstrated the useful potential of this strategy if shareholders know where to look (learn more here).

With these “truths” under our belt, we’re going to take a look at the latest action regarding Doral Financial Corp. (NYSE:DRL).

Hedge fund activity in Doral Financial Corp. (NYSE:DRL)

Heading into 2013, a total of 10 of the hedge funds we track were bullish in this stock, a change of -9% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially.

When looking at the hedgies we track, Kevin Michael Ulrich’s Anchorage Advisors had the largest position in Doral Financial Corp. (NYSE:DRL), worth close to $3.3 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Eric Mindich of Eton Park Capital, with a $1.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedgies that are bullish include Brett Hendrickson’s Nokomis Capital, Robert Pohly’s Samlyn Capital and D. E. Shaw’s D E Shaw.

Judging by the fact that Doral Financial Corp. (NYSE:DRL) has experienced declining sentiment from hedge fund managers, it’s easy to see that there were a few money managers who were dropping their entire stakes in Q4. It’s worth mentioning that Robert Joseph Caruso’s Select Equity Group dropped the biggest stake of all the hedgies we watch, totaling about $1.4 million in stock. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds in Q4.

What do corporate executives and insiders think about Doral Financial Corp. (NYSE:DRL)?

Insider purchases made by high-level executives is at its handiest when the company in question has seen transactions within the past six months. Over the latest 180-day time period, Doral Financial Corp. (NYSE:DRL) has seen 1 unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Doral Financial Corp. (NYSE:DRL). These stocks are Inc (NASDAQ:TREE), FirstCity Financial Corporation (NASDAQ:FCFC), BRT Realty Trust (NYSE:BRT), and IMPAC Mortgage Holdings, Inc (NYSEAMEX:IMH). This group of stocks are in the mortgage investment industry and their market caps are similar to DRL’s market cap.